MOSL: DIVI'S LABORATORIES (Neutral)-Margin surprises positively-charts expansion plan for coming years
Divi's Laboratories: Margin surprises positively; charts expansion plan for coming years
(DIVI IN, Mkt Cap USD4.8b, CMP INR1146, TP INR1200, 5% Upside, Neutral)
- DIVI’s 4QFY18 revenue grew by a muted ~2% YoY (+5% QoQ) to INR10.9b (est. of INR10.2b). Gross margin improved ~210bp YoY (~130bp QoQ) to 62.5%. This, along with a decline in other expenditure by ~180bp (as % of sales), led to margin expansion by ~180bp YoY to 35.5%. EBITDA rose ~8% YoY (+19% QoQ) to INR3.9b (est. of INR3.4b). PAT, however, grew by just ~1% YoY to INR2.6b, mainly due to a higher tax of 34% v/s 26% in 4QFY17. For FY18, sales, EBITDA and PAT stood at INR39b (-4.5%), INR12.6b (-12%) and INR8.7b (-17%), respectively.
- Generic sales contribution increases: During the quarter, generic sales comprised ~56% of revenue (~52% earlier), while CRAMS business formed ~44%. Nutraceuticals sales stood at INR690m in the quarter.
- EBITDA margin to improve FY19 onward: DIVI’s EBITDA margin improved ~410bp QoQ in 4QFY18, primarily due to 1) a change in product mix, 2) forex income and 3) absence of any remediation cost (DIVI spent ~INR700m in the first three quarters on remediation, including INR490m as consultation fees). We expect EBITDA margin to improve by ~400bp YoY to ~36% in FY19. According to management, if USD/INR and crude oil prices stay at current level, it will be beneficial for the company in the near term.
Divi's Laboratories is a manufacturer of Active Pharmaceutical Ingredients and Intermediates. The major portion of its turnover is on account of export of its products to European and American countries. Co.'s product portfolio comprises two segments i) Generic APIs (active pharma ingredients) and Nutraceuticals and ii) Custom Synthesis of APIs, intermediates and specialty ingredients for innovator pharma giants. Co. has two Subsidiaries viz., Divis Laboratories (USA) Inc., and Divis Laboratories Europe AG looking after manufacturing and marketing of Neutraceutical products in North American and European Countries.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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